Batista’s OGX Joins Exxon to Win Brazil Offshore Blocks

By Juan Pablo Spinetto, Rodrigo Orihuela and David Biller -
May 15, 2013

Exxon Mobil Corp. (XOM), the world’s most
valuable oil producer, teamed up with billionaire Eike Batista
to search in Brazilian waters as the country raised a record
amount in its first oil bidding round in five years.

A partnership between the Irving, Texas-based company,
which failed to make major discoveries in previous exploration
efforts in Brazil, and Batista’s OGX Petroleo & Gas
Participacoes SA won rights for one offshore block in the
Potiguar basin and another in Ceara. The so-called Round 11
auction staged by regulator ANP yesterday also saw BP Plc (BP/) and
Total SA, Europe’s biggest producers after Royal Dutch Shell
Plc (RDSA), win licenses off Amapa state in the largest single bid.

Brazil, home to the biggest crude discovery in the Americas
in more than 30 years, raised a record 2.8 billion reais ($1.4
billion) by selling licenses at 142 of the 289 blocks for sale.
Exxon returns to the country while Total expands into the Foz do
Amazonas basin bordering French Guiana and BG Group Plc becomes
an operator for the first time.

“The competition was stronger than I expected,” Joao Carlos de Luca, the head of the Brazilian Oil Institute, told
reporters in Rio de Janeiro. “We have great new operators in
the country. The return of Exxon is an important factor.”

Brazil’s first sale of oil permits since 2008 will give
Exxon a chance to resume exploration in the country after it
drilled dry holes and returned a license last year in the so-called pre-salt region.

Investment Plan

Exxon, which also explored Foz de Amazonas in 2001 and
2002, will have a 50 percent interest in the two new blocks it
won with OGX and will operate both, spokesman Patrick McGinn
said by telephone, declining to comment further.

The 30 winning companies will invest a minimum of 6.9
billion reais to develop the areas that span 11 sedimentary
basins on land and off the coast of north and northeastern
Brazil.

A partnership between Total, BP and state-run Petroleo
Brasileiro SA made the largest single bid of 346 million reais
for the FZA-M-57 block in deep waters of Foz do Amazonas.

“The super consortium that took shape for the equatorial
margin is Total, BP and Petrobras,” de Luca said, noting that
Total will operate the block. “Petrobras teaming up with other
companies is very good for the sector.”

‘Acted Aggressively’

Batista’s OGX, the Rio de Janeiro-based company that has
lost 84 percent of its market value in the past year, also won
licenses for 10 blocks in five basins bidding without partners
and an additional 30 percent stake in a block together with
Total and QGEP Participacoes SA. (QGEP3)

OGX is taking on new exploration projects even as the
company sells stakes in fields, reduces staff and cuts costs
after losing investor confidence amid missed production targets.
Brazil’s worst-performing stock last year has plunged an
additional 57 percent this year after lower-than-expected output
rates.

OGX agreed to pay 377 million reais for the exploration
licenses, including its share in blocks won with partners,
according to ANP data. The company missed out on rights in four
other blocks where offers were presented in conjunction with
Exxon. OGX committed 16 percent of its cash to the new licenses,
according to Banco Santander SA analysts Christian Audi and
Vicente Falanga Neto. The Rio-based company would be better
served focusing on development of its existing assets, they
wrote in a note to clients dated today.

China Absence

“Once again the company acted aggressively, which is a
characteristic of OGX and of Eike Batista,” Adriano Pires, the
head of the Brazilian Center for Infrastructure, a consulting
firm in Rio de Janeiro, said in a telephone interview. “Nobody
expected that given the complicated situation the company is
having lately. They took onshore and offshore blocks.”

OGX Chief Executive Officer Luiz Carneiro said in an e-mailed statement today the acquired offshore blocks are located
in a “highly promising area.” “This is clearly an exciting
time for Brazil’s oil and gas industry,” he said.

OGX rose 6.8 percent to 1.88 reais in Sao Paulo today, the
highest close since May 7.

Winners of the auction, held at a Rio hotel, also included
Brazilian startup Ouro Preto Oleo & Gas SA and Colombia’s
Ecopetrol SA. (ECOPETL) Chief oil regulator Magda Chambriard told
reporters she was surprised by a lack of bids from Chinese
companies.

Amazon Basin

BP and Total agreed to pay 621.5 million reais for the
offshore Amazon basin concessions. BHP Billiton Ltd. won bidding
for two blocks in the same basin, the Melbourne-based mining
company’s first oil assets in Brazil.

Most of the areas auctioned yesterday are in virgin waters
off the coast of northeastern Brazil where discoveries in
similar geology across the Atlantic in Ghana and Ivory Coast
yielded major discoveries. Tullow Oil Plc in 2011 sparked
interest in the region with the Zaedyus find off the coast of
French Guiana.

“The bidding has been aggressive,” Thore Kristiansen,
head of Statoil ASA in Brazil, told reporters after the
Stavanger-based company won blocks in ventures with Petrobras
and Total. “The bidding has shown it’s been five years since
the last auction. There’s an industry willing to take risks.”